The New Arthurian Economics

Thursday, January 19, 2012

Some things cannot be said often enough. Excessive private debt is the problem.

I want to look at the growth of debt. I want to see when the Federal debt grows a lot, and when it doesn't.

Here's the graph we started with last week:

Graph #1: The Federal component of TCMDO debt

I want to look at the growth of debt. But first: How do we measure growth?

Wikipedia says Economic growth is measured as a percentage change in the Gross Domestic Product (GDP) or Gross National Product (GNP).

So... percentage change in the thing you are measuring. Good enough. It's the answer I expected, anyway.

So to look at the growth of Federal debt, or growth rate I guess, I want to look at the percentage change in the Federal debt. I can do that:

Graph #2: Percent Change from Year Ago, from Graph #1

Here, I took Graph #2, highlighted the significant uptrends, and used it for Graph #3:

Graph #3: Federal debt growth, with uptrends highlighted

Every highlighted uptrend but one coincides with a vertical gray bar, and every vertical gray bar except the first coincides with a highlighted uptrend.

Every significant uptrend in Federal debt growth but one coincides with recession, and every recession except the first coincides with a significant uptrend in Federal debt growth.

The one highlighted increase that does not coincide with recession occurred around 1967. There was no recession that year, but there was a near-recession in 1966-67. So while no vertical gray bar appears at that point on the graph, economic conditions were in fact recessionary, just as at every other highlighted uptrend on the graph.

The one gray-bar recession that does not coincide with a highlighted uptrend appears right at the start of the Federal debt data on Graph #3. In my view the blue-line uptrend which coincides with that recession was not significant enough to merit highlighting. Nonetheless, there is in fact an uptrend there, which coincides with the gray recession bar on the graph.

There is a strong, reliable relation between recession and Federal debt growth.

If you want to minimize the growth of Federal debt, you must minimize the occurrence, duration, and severity of recession, and you must restore health and vigor to the U.S. economy.

4r3 (red) shows Gross Federal debt approaching 15K billion; this is the debt-clock number. 4r3 (blue) shows the credit-market component of that, at around 10K billion. The difference is owed to Federal agencies, not to credit markets. The borrowing from Social Security and like that. As I understand. (See Gene Hayward's comments here and here.)

But as you show in

http://research.stlouisfed.org/fred2/graph/?g=4qI

they do "move in near-perfect lock-step." My claim of "a strong, reliable relation" is valid for either dataset. Interestingly, 4qI shows generally bigger spikes at the recessions for Gross Federal than for Credit Market debt.

How does FRED do that, anyway? ...identify their graphs with just a THREE character code!